How Does Square (Block) Make Money? Business Model Explained!

The company previously known as Square, Block Inc. (SQ), provides online payments and financial services to small businesses. Block’s main products include a point-of-sale hardware system, payment processing and analytics software, Square Debit Card (a free debit card for businesses), and Cash App (a peer-to-peer payment system).

As part of the company’s efforts to promote access to Bitcoin and other blockchain technologies, it also owns a majority share in music-streaming service TIDAL.

Block competes with a wide range of small and large companies, including business software companies, payroll processors, payment terminal vendors, and banks. Among them are PayPal Holdings Inc. (PYPL), Intuit Inc. (INTU), Shopify Inc. (SHOP), and venture capital startup ShopKeep.

Overview of Square’s (Block) Financials

Block has grown rapidly into one of the biggest and best-known payment processors in the United States since its 2015 IPO. However, it has only recently turned profitable. The company reported its first annual profit in FY2019, four years after going public. In FY 2020 and FY 2021, the company’s profits were profitable again, but since FY 2019 profits have declined.

The company released its Q4 FY 2021 financial results late in February, which covered the three months ended Dec. 31, 2021. Block reported an annual profit for all of FY 2021, but a net loss of $76.8 million in the fourth quarter that was attributable to common shareholders. 

It represents a significant drop from net income of $294.0 million in the year-ago quarter, which included an equity investment gain of $274 million. To $4.1 billion, quarterly revenue increased 29.1% year over year (YOY). Profitability is measured by the company’s gross profit for each business segment, which increased by 47.1% year over year to $1.2 billion.

Block’s fourth-quarter revenue was driven by Bitcoin, which accounted for 48% of total revenue, up 11.7% year over year. Bitcoin can be purchased through Block’s Cash App, for which the company charges a small margin over the price it pays for the bitcoin. As bitcoin prices fluctuate and customer demand changes, bitcoin revenue will fluctuate.

The company generated 32% of its revenue from transactions, while subscription and service revenue made up 19% of the total, and hardware revenue made up 1%.

How Square (Block) Makes Money?

As of June 30, 2020, the company’s operating and reporting segments have changed. The company previously reported as a single unit. Now the company has two reportable segments: Cash App and Square, formerly known as Seller until it changed its name to Block. 

These are the two primary ecosystems of the company. Block offers products and services through TIDAL as well as Bitcoin and blockchain initiatives, which do not fall under any specific reportable segment. These operations have no material impact on the results of this category, which is general corporate and other. We will look at the company’s Cash App and Square segments, for which it provides revenue and gross profit breakdowns.

1. Cash App

Block’s Cash App segment offers financial tools to customers who use its mobile cash application. Among these are P2P payments, bitcoin and stock investments, as well as Cash Card transactions, which are linked to stored customer balances that can be used for purchases or withdrawals at an ATM.

Cash App generated gross profit of $517.6 million in Q4 FY 2021, a growth of 37.4% over the prior year. Segment gross profits accounted for approximately 44% of the total gross profits of the company. A total of $2.6 billion was generated by Cash Apps in Q4 FY 2021, accounting for about 63% of total revenue.

2. Square

Square’s managed payment services, software solutions and hardware, as well as financial services for sellers are included in the Square segment, excluding the Cash App-related services.

Square’s Q4 FY 2021 gross profit was $657.3 million, up 53.9% from the year-ago quarter. In terms of gross profit, the segment accounts for almost 56% of the total. About 37% of total revenue came from Square – revenues rose 49.0% year-over-year to $1.5 billion.

Recent Developments

Block announced on Jan. 31, 2022 that it has acquired Afterpay Ltd., an Australia-based financial technology company that offers a “buy now, pay later” (BNPL) platform. First announced in August 2021, Block’s acquisition of Afterpay is valued at approximately $29 billion. Using its Square payments ecosystem, Afterpay now offers its BNPL services to sellers.

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